TAKE A LOOK: Reaction to factory data

NEW YORK (Reuters) - U.S. factory activity expanded unexpectedly in June but inflation pressures soared, according to a report released on Tuesday.

U.S. construction spending fell 0.4 percent in May on continued deterioration in the residential sector, but outside of home building private spending rose for the fifth consecutive month, government data on Tuesday showed.

KEY POINTS: * The Institute for Supply Management said its index of national factory activity rose in June to 50.2 from 49.6 in May after four straight months of contraction. * Economists' median forecast was for a result of 48.6, according to a Reuters poll. The 81 forecasts in the survey ranged from 46.0 to 50.5. * A reading below 50 represents contraction in the factory sector. June's reading was the first above 50 since January. * The index of prices paid jumped to 91.5 from 87.0 in May, for the highest reading since 1979.

COMMENTS:

MARC PADO, U.S. MARKET STRATEGIST, CANTOR FITZGERALD & CO., SAN

FRANCISCO:

"When you talk about GDP, we had a huge drawdown in inventories in the fourth quarter, and a small drawdown in the first quarter. We start looking at a rebuild of inventories, which is going to be a positive for GDP. That's where a number like this comes into play; it also plays well for the jobs number.

"We basically waited for the ISM to get out of the way, to make sure there wasn't going to be some really nasty number that was going to disrupt us. So we once we got that out the way, that's when the market took off.

"So it wasn't so much the ISM number, it was the fact that the bargain hunters were just waiting for that number to come out so they could get to work and look for some opportunities here."

GEORGE ADELL, FIXED INCOME STRATEGIST, COMMERCE CAPITAL

MARKETS, JUPITER, FLORIDA:

"It's negative for bonds and pro stocks. It paints a slowing growth scenario with rising inflation. That's a tough path for the Fed to traverse.

"Prices are downright ugly. We've seen an awful lot of inflation in the past year."

"There is growth in manufacturing. Aircraft and machinery are going overseas where demand is still solid."